New federal funding formula puts onus on province to make difficult health decisions

Ottawa's decision to scale back future health-funding increases is creating a budgetary headache for Manitoba, which is already struggling to keep a lid on medical costs.

Manitoba stands to lose up to $40 million a year when scheduled changes to the federal health-funding formula kick in in 2017, according to Premier Greg Selinger.

If the feds follow through with their plans, have-not provinces like Manitoba will face greater challenges in paying for health care. (Ottawa covers about 20 per cent of health expenses, compared with 50 per cent decades ago.)

The new funding regime will increase the already considerable pressure on Manitoba and other provinces to find innovative ways to reduce costs. "Everybody recognizes that we have to work hard to get more cost-effective services, more value for the money and manage costs. Everybody accepts that," Selinger said in an interview this week.

Manitoba spends almost $5 billion annually on health care -- 43 per cent of the province's budget. Last spring, the province budgeted a 5.8 per cent funding increase for health in 2011-2012.

There are several reasons for Canada's ballooning health-care costs. The cost of treating chronic diseases is escalating. Contracts with physicians, such as the one Manitoba signed with its doctors last fall, continue to be generous to prevent doctors from bolting for greener pastures. Drug costs continue to rise -- although not by as much in years past. An aging population is also a factor, but not as big as the public might think. Its contribution to rising health costs is estimated to be 0.8 per cent, according to the Canadian Institute for Health Information.

Drug costs

Once the highest rising cost item in the Canadian health system, the total bill for medications is starting to level off. There are predictions that, over the next year, the overall cost of prescription drugs across Canada could even decline.

Steve Morgan, a professor of health policy at the University of British Columbia, said an extraordinary expansion of medicines brought to market in the 1970s and 1980s to treat high cholesterol, hypertension, anxiety disorders and other illnesses caused health costs to soar.

Many of those drugs have since come off patent, saving provinces like Manitoba millions of dollars. Offsetting much of these savings, though, is the fact new drugs for cancer, rheumatoid arthritis and other specialty medications can be extremely expensive. "They may not be used by thousands of people, but they cost sometimes literally hundreds of thousands of dollars per patient treated," Morgan said.

A problem for Manitoba is it lacks the buying power of a big province like Ontario, which can use its clout to demand better deals from generic and name-brand drug companies. Many provinces, including Manitoba, have been frustrated at Ottawa's refusal to take a lead in developing a national drug plan -- something that could conceivably save Manitoba taxpayers tens of millions of dollars a year.

Health Minister Theresa Oswald said the provinces have pushed Ottawa to lead a national pharmaceutical strategy for years, but have got nowhere. "A pan-Canadian approach to any kind of health policy is not what certainly the current government has been impassioned about doing," Oswald said recently.

Still, Manitoba has sought alliances with other provinces to save money. It buys cancer drugs in bulk with Saskatchewan, for example, saving roughly $1 million a year. And at their meeting last fall in Halifax, provincial health ministers committed to continuing to discuss a wider bulk-buying strategy.

Drug costs were rising by as much as 15 to 20 per cent annually in Manitoba a decade ago, Oswald said. But through improved procurement policies -- recognized in 2008 by the federal Competition Bureau -- and bulk purchasing, its costs have risen by only two to five per cent annually in recent years, she said.

Chronic diseases

This is an area that takes a big bite out of the health-care budget, and as the population ages, the situation will only be magnified. Such illnesses as coronary heart disease, asthma and diabetes cost big bucks to treat.

The Manitoba Centre for Health Policy recently completed a study comparing the total health costs of people with chronic diseases and those who didn't have one. They made sure demographic and socio-economic backgrounds were as similar as possible between the two groups. Costs were calculated over a two-year period. The results were eye-opening.

For example, it cost the health system $22,000, on average, over two years to treat someone who had a stroke, compared with $10,278 in the matched group (same age, sex and socio-economic situation). The average health costs of all Manitobans who did not have a stroke was $3,800 over the same period. For people with diabetes, the total cost was just under $14,000, compared with $6,370 in the control group and an average $3,489 for all Manitobans without diabetes. For people suffering from asthma and chronic obstructive pulmonary disease, the cost was $8,509 over two years, compared with $4,910 for the matched group and $4,093 for all Manitobans who had neither of these conditions. The study also looked at the costs of treating persons with coronary heart disease and arthritis. Similar results were also found.

What's of interest for policy makers is that lifestyle choices influence some of these conditions. So public education, leading to behavioural changes, can save big bucks. Obesity, for instance, is linked to several chronic conditions, ranging from hypertension and Type 2 diabetes to increased problems with arthritis. Worrisome is that Manitobans, and other Canadians, are becoming obese at a younger age.

Greg Finlayson, lead author of the study, was careful, though, not to condemn nor admonish individuals with chronic illnesses. He said disease prevention is a broader societal issue. "It is not the individual that is costing money. We don't want to blame people," he said.

Administration costs

When rising health-care costs are discussed, the bureaucrat is the favourite whipping boy. Come election time, health administration -- which makes up a relatively small percentage of overall costs -- gets plenty of political attention.

Manitoba's NDP came into office in 1999 vowing it could trim $2.5 million from regional health boards set up by the previous Filmon government. Hospital administrative expenses would rise in 2000-2001 to 5.5 per cent from 4.1 per cent in 1999-2000 in Manitoba before levelling off and beginning a steady decline.

In the 2007 election campaign, the provincial Conservatives promised to cut Winnipeg Regional Health Authority spending to three per cent of overall spending. Last year, before the provincial election, the NDP bragged WRHA corporate-administration spending had been cut to 2.81 per cent. (When recruitment, human resources and 'patient-care related' administration costs are included, the total reaches 4.29 per cent, or $105.5 million.)

"People hate bureaucrats; they love doctors and nurses," Health Minister Theresa Oswald quipped when asked about political and media preoccupation with health-administration costs. She said the province would continue to scrutinize corporate costs, which include general administration, executive offices, communications and other costs.

However, she and others have also expressed concern there is a point of diminishing returns from administrative cuts. If there are too few managers, the health system may lack sufficient oversight and fall short on accountability. In examining Manitoba's regional health authorities in 2008, an outside consultant made the point that "undue attention" was being paid to administrative costs as an indicator of how the regional health system was working.

The salaries of top WRHA executives occasionally provide fodder for public outrage, although Manitoba health bureaucrats' pay is generally modest compared with other jurisdictions, such as Alberta. Former NDP health minister Tim Sale said the executive with the big salary is a great target, but running any part of a health-care system is a demanding job. "If you want to have your health system administered by somebody who's paid a crappy salary, I'd rather not go to it," he said with a chuckle.

Doctor pay

Last fall, in what was described as a win for the province's doctors, the Selinger government committed to paying physicians comparable fees to those received by MDs in richer neighbouring provinces. On Oct. 4, the province's 2,400 doctors ratified a four-year deal that assured they'd be paid, on average, the same as those in Alberta, Ontario and Saskatchewan. The docs got a 10.6 per cent fee boost over four years -- which kicks in mainly in the last two years -- and other financial incentives.

Doctors have considerable clout -- Manitoba doesn't want to lose them to other jurisdictions. But by tying compensation to the so-called OPA (Ontario-Prairie average), was it committing to a pay regime it can ill afford? The new deal also fails to account for technological changes that allow some physicians to perform far more procedures in a given period than they used to. That has greatly inflated earnings for some.

In a recent interview, Oswald defended the deal, saying it will help the province attract and retain doctors. She said tying compensation to the OPA also presents an opportunity for Manitoba to work jointly with the other jurisdictions in introducing reforms to MD compensation. However, she hastened to say no such co-operation yet exists.

The deal with doctors also provides incentives for physicians to spend more time with those suffering from chronic diseases, Oswald pointed out. That will help prevent folks from winding up in an emergency room -- or prematurely in a personal-care home. This, ultimately, saves the province money, she said.

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